The IEO said on Monday that the PRA's "articulation of its policyholder protection responsibilities appears to be unfinished business".

PRA work on policyholder protection had been "crowded out" by "live supervisory issues" and the need to implement European Union capital rules known as Solvency II by January 2016, the IEO said in a report.

The BoE's supervisors need to articulate fully their approach to protecting policyholders, though there was no evidence that PRA supervisors were falling short of their duties, the IEO said.

The PRA should also ensure there is appropriate coordination with its sister regulator, the Financial Conduct Authority.

BoE Deputy Governor and PRA Chief Executive, Sam Woods, said the IEO's assessment was informative and balanced, and that the PRA has agreed a set of actions in response.

The PRA will be clear that it does not seek to protect all policyholders equally, but will direct more of its resources to those who would suffer greater financial hardship if their policies did not pay out as promised, Woods told the London Business School in a speech.

Britain's exit from the EU has also raised hopes in the sector that Solvency II will be overhauled, but Woods reiterated there would be tweaks, rather than a broad overhaul.

Woods said the debate about Solvency II has become a "cacophony of acronyms" emanating from a "magic circle of insurance enthusiasts".

"But strip this back and you’ll see there is an essential, irreducible human core to it all," Woods said.

"Some of the oldest and most vulnerable in our society have invested their life savings into long-term annuity contracts," Woods said.

"So when we talk about promoting insurers’ safety and soundness, and protecting their policyholders, this is what we have in mind."